After a couple of rough years, sustainability appears to be back on the upswing. Spending on sustainability programs is up, and industries are increasingly recognizing the value of sustainability departments. A recent survey from the Morgan Stanley Institute for Sustainable Investing finds these trends are reflected among investors as well. In a survey of 900 institutional investors, the vast majority expect to increase their sustainable investments in the next two years:
“Over 80% of institutional investors expect their allocations to sustainable investments to increase over the next two years, seeking exposure to growth opportunities and reflecting the rising materiality of sustainability-related risks. But these expectations are more modest than in 2025: only 2% of asset owners and 4% of asset managers expect allocations to rise by more than ten percentage points, down from around one-fifth.”
The caveat in that pull quote is revealing. While sustainable investments are expected to rise, the growth projection isn’t dramatic or astronomical. While the pendulum is swinging back in sustainability’s favor, something is different this time. The sustainability push of six years ago was aggressive and optimistic. This time, it appears tempered and reasonable. Much of that may stem from underlying economic currents and factors. Economically, things are, to put it mildly, not great. Additionally, there’s no sign of relief anytime soon. Stack climate risks on top of that, and there’s a real possibility that things get substantially worse. Sustainability is now framed as a defensive mechanism to cope with the changing world. This data point reveals how investors are thinking about climate risks:
“Globally, 59% of respondents aim to address climate adaptation and resilience as a theme, just ahead of climate mitigation (52%). While almost 90% say assessing physical impacts of climate change on portfolios is challenging, most expect climate-related risks to influence asset prices within the next five years”
The previous sustainability wave pushed concepts like “values-based investing” and “impact investing.” These were largely idealistic movements based on the idea that investors could make the world a better place. The current resurgence is more pragmatic and resilience-focused. It’s less focused on making the world a better place and more focused on surviving in a challenging and unpredictable environment.
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